5.1 Sample Location and its
Characteristics

Three regions were selected in Brazil, each with the following
characteristics:

i. South - This region includes the sates of Rio
Grande do Sul (RS), Santa Catarina (SC) and Paraná (PR). It represents
the traditional grain, meat and milk areas, including both small and
medium-sized farms. Livestock industries located in the South represent a large
share of the sector.

ii. Southeast - São Paulo (SP), Minas Gerais MG), Rio
de Janeiro (RJ) and Espírito Santo (ES) are included in the Southeast. It
is the richest and most industrialized area of the country. Regarding the
agricultural sector, this region is no longer an important grain production
area. It concentrates the production of sugar cane and orange, particularly in
São Paulo, and other agricultural products in Minas Gerais. In peripheral
areas, milk, beef and eggs are still produced. The Southeast imports grains from
other regions, especially the Central West.

iii. Center West - The states of Mato Grosso (MT), Mato Grosso
do Sul (MS) and Goiás (GO) form the central west region of Brazil. It is
characterized by a low population density and a great expansion potential for
crops and animal production. It is the area where agriculture grows at the
highest rate in Brazil. It is the area with highest export of food. Grain
production and cattle ranching predominates in the central west
region.

5.1.1 Sample Size and Composition

i. The broiler survey was based on a sample of 235 farms.
Table 5.1 indicates the sample composition according to the lodging capacity.
Only 6 farmers in the sample did not produced under contract. Observed contracts
were similar in conception.

ii. The hogs survey considered a sample of 193 farms
distributed over the states of Goiás,.Minas Gerais, Mato Grosso do Sul,
Mato Grosso, Paraná, Rio Grande do Sul and Santa Catarina. The samples
were stratified according to the number of parents, following the methodology
defined by Brazilian Institute of Geography and Statistics (IBGE). The producers
were divided into three groups: integrated (contracted by the companies),
integrated (member of cooperatives) and independent.

Table 5.2 indicates that 51% of swine growers in the sample
produced under contract; 30% operated independently and 19% were
cooperatives.

Table 5.1 Number of producers per state and lodging
capacity

Ranges (birds)

GO

MG

MS

MT

PR

RS

SC

Total

4001 - 16000

0

13

4

7

13

13

40

90

16001 - 60000

11

14

21

21

6

13

32

118

Over 60001

18

8

1

0

0

0

0

27

Total

29

35

26

28

19

26

72

235

Source: Research data

Table 5.2 Numbers of sample farmer according to the
production system

Number

%

Cooperative

37

19%

Independent

57

30%

Integrated

99

51%

Total

193

100%

Source: Research data

According to Table 5.3, almost have of the small-scale swine
producers (less than 200 sows) are integrated and about a third are independent.
The proportions of integrated and independent producers in the next stratum
(200-600 sows) are the equal (41.7%). One half of the largest farmers (more than
1200 sows) are independent.

Table 5.3 Characteristics of farmer production system for
numbers of Sows

System

0-200

200-600

600-1200

> 1200

Cooperative

19,0%

27,0%

16,7%

21,4%

Independent

31,6%

54,1%

41,7%

50,0%

Integrated

49,4%

18,9%

41,7%

28,6%

Total

100,0%

100,0%

100,0%

100,0%

Source: Research data

Three types of production systems were included in the sample,
as shown in Table 5.4. In Minas Gerais, Paraná, Rio Grande do Sul e Santa
Catarina, swine production is dominated by the complete-cycle system. In Mato
Grosso and Mato Grosso do Sul growers are predominantly finishers, but farmers
producing under the complete system are also expressive in number. The
production of piglets only dominates in Goiás but is relevant in Rio
Grande do Sul and Santa Catarina as well.

Table 5.4 Swine production system by state

System

GO

MG

MS

MT

PR

RS

SC

Complete cycle

26,32%

67,74%

36,67%

40,00%

66,67%

52,00%

46,67%

Piglets production

42,11%

9,68%

6,67%

33,33%

40,00%

35,00%

Finishers

31,58%

22,58%

56,67%

60,00%

8,00%

18,33%

Total

100,00%

100,00%

100,00%

100,00%

100,00%

100,00%

100,00%

Source: Research data

iii. The sample of dairy farmers included 160 producers
according to the production distribution of IBGE. The selected states represent
76 % of the milk production in Brazil.

Table 5.5. Numbers of sample dairy farmers by
state

State

Number of Farmers

% of farmers in the sample

% of the state in national production

RS

35

21,88%

11,73%

SC

17

10,63%

3,85%

PR

20

12,50%

7,23%

SP

17

10,63%

15,21%

MG

43

26,88%

25,84%

GO

28

17,50%

11,97%

Total

160

100,00%

75,83%

Source: Research data.

Small-scale dairy farmers (less than 500 liters/day) are
expressive in Rio Grande do Sul and Santa Catarina. See Table 5.6. In
Paraná, São Paulo, Minas Gerais and Goiás, larger farms
dominate. Small-scale farms employ predominantly family labor in the South. In
Goiás, to a higher degree, and São Paulo and Minas Gerais,
small-scale farms are based on hired labor. Larger farms use mainly hired labor
as expected.

iv. The size of the sample of egg producers was 89 distributed
among states according to data from IBGE. Small-scale farmers predominate in the
sample.

Table 5.7 Sample of Egg Producers

Number of chickens

MG

PR

SP

TOTAL

0 to 50000

9

14

18

41

50000 to 200000

11

5

10

26

200000 to 5000000

2

10

12

Over 500000

3

1

6

10

Source: Research data

5.1.2 Rationale for Size Category

The basis for the sample stratification followed the standards
indicated by IBGE. However, the original layers were added in a way to compose
groups that could be identified according to the number of animals and that
could be related to the different production systems found in the field
work.

Smallholder: According to the 1996 Agriculture Census,
informal scale production has practically disappeared. As a rule, it has become
cheaper the acquisition of the product in the market than its "backyard"
production. Also, although municipal health and environment regulations vary
according to the city administration, in general animal growing is forbidden
within urban areas. Thus, small farms were defined in a way to compose a group
of producers with a minimum commercial production scale.

Hogs: 0-200 saws.
In this group, the complete cycle producers of the South region predominate and
family labor is used. In the region, we can still find the so-called
"condominiums", that is, groups of small producers who get together to form a
hogs production unit, which supply inputs to its associates, making hogs
production costs compatible with that of large production scale
groups.

Broiler: 4001 to 16,000 birds
of inventory. This type of production is predominant in Southern Brazil.
Companies and cooperatives adopt the minimum size of 6000 birds for the
contract. Producers with a lower number of birds were not found in the field
survey in of the areas; that information was checked with official extension
organizations.

Dairy: from 200 to 500 liters
by day. IBGE still identifies the existence of smaller producers in the 1996
Census. However, the selection process the sector has gone through in the last
few years has elevated scale production. The search for productions of less than
200 liters per day was little productive, even in the south area. This module
comprises economically viable producers in terms of production
transportation.

Layers: up to 50000 birds. The
highest concentration of this type of producer is in the State of Paraná,
where aviculture is a traditional activity. In the states of São Paulo
and Minas Gerais, larger producers can be found, with over 500000
birds.

Medium-scale Operations

Hogs 200 to 600 saws and 600 to 1200 saws - most Brazilian producers are
in this layer.

The group was divided in two: the 200- 600 saws group operates mostly
in a independent system production with a great amount of family labor;
the group with 600 to 1200 saw is formed by integrated production growers.

Hogs: less than 1200 saws. LARGE SCALE.

Are mostly in the Central West region of the country and act independently.

Broiler: 16,000 to 60000 birds of inventory.

Size considered ideal by southern integrators, but small or medium-sized
in the Midwest.<

Broiler: more than 60000 birds of inventory.

Producers of this size can be found in the areas of Rio Verde/GO and
Uberlândia /MG. Two areas of more recent avicultural activities
located in na área of a large grain production.

Dairy: more than 500 liters/day.

Predominant in the states of SP, MG, GO and RS. Uses mainly hired
labor.

Layers: 50000 to 200000, 20000 to 500000 and over 500000.

All of theses groups have a single economic logic. They have a
good capability for input acquisition and production commercialization.
They are situated mainly in the states of MG and SP.

Timing and extent of surveys - October - January.

i. Broiler:
ii. Hogs:
iii. Dairy:
iv. Layer:

N.B.: Scope of production period:

¨ For production patterns in defined cycles:
the LAST production cycle

¨ For production patterns with no defined
cycles (e.g., overlapping batches of Farrow-to-Finish operations): Input-output
performance in the month of October 2002.

Problems encountered

Broiler

Difficulty in finding independent broiler operations (prevalence
of contract production and commercial operations).

ii. Hogs, layers:

Producers are going through a difficult moment and were not willing
to talk about the production.

iii. Layers:

The producers form closed and hard-to-approach groups. The strategy
adopted to break the ice was to contact unions and the name of the
university. The contact was done by Japanese descendant members and
some times the use of the Japanese language was necessary.

iv. Broiler, Hogs, Dairy

A work with the integrator companies and cooperatives was necessary
so that they would not show resistance to the work. At the same time,
associations and unions weree contacted in order to obtain non-biased
samples.

v. Logistics

Poultry: 17000 km.

Hog: 22000 km.

Dairy: 13000km.

Layers: 6000km.

The access to farms through municipal, state and federal roads has
problems in rainy days, especially due to the rainy period in December
and January.

5.2 How Data was handled and Variables Constructed.

The information collected through the field surveys were used to construct
the variables needed for estimation of the profit function frontiers. Four
equations were defined: one for broiler, one for swine, one for dairy and
another one for layers (or eggs). The dependent variable in all of them was
profit per unit of output. The set of explanatory (RHS) variables were subdivided
into two subsets: (a) the beta coefficient variables related to the profit
function properly and the delta coefficient variables designed to explain
the inefficiency of the farmers vis a vis the frontier function.

5.2.1 Broiler Equation

All broiler farms produces under contract, that is, all are integrated.